Since the county hired Partridge and adopted his investment approach in October 2009, its portfolio earned an average 9.7 percent a year, according to a July memo.

That beat the county’s goal of 7.75 percent. However, over roughly the same period, the city’s fund earned 13.6 percent.

The city is not alone in such outperformance.

San Diego County’s pension fund ranked 84 out of 100 similar funds over the three- and five-year periods before Sept. 30, 2013, according to an analysis released last year by Wurts Associates, a consultant to the board.

Meanwhile, the fund spent $103.7 million in investment and administrative fees in the 2013 fiscal year. Although the board is cutting fees this year by dumping some hedge funds, it’s likely to remain one of the nation’s highest-cost funds.

Mystery deepens

If you’re wondering why the county’s board chooses high costs and low performance, you are not alone.

To deepen the mystery, consider that the board recently extended its contract with Partridge’s firm, where fees will grow to $10 million this year. The lone vote against the contract came from Dan McAllister, the county’s elected treasurer.

Yet McAllister was part of a unanimous vote in April approving the new strategy, which nearly triples potential leverage.

“As a trustee, it is my fiduciary responsibility to review and approve an appropriate asset-allocation framework that best positions SDCERA to achieve its 7.75 percent assumed rate of return,” McAllister said in an email last week.

Amazingly, the board’s decision came after a yearlong review, during which various board members said they were “deeply concerned” or had “serious questions” about Partridge’s use of leverage.

One of them was Supervisor Dianne Jacob, who has been on the board for a decade, in time to witness the collapse of two hedge fund investments, not to mention major losses on leveraged bets in the 2008 market meltdown.

“Leverage is not a bad thing, and I never said it was a bad thing,” Jacob said last week. “I said I was concerned and troubled by the Treasury portion of the portfolio.”

“We’ve changed the strategy,” she said. “It’s better because, instead of relying on a single risk-balancing tool with interest-rate exposure, we are now changing to a more flexible use of leverage.”

Luck vs. skill

Using tactics called “trend,” “momentum” and “risk parity,” much of the county’s strategy depends on Partridge’s ability to anticipate and respond to market movements.

“If things start to trend down, and they are going down at an accelerating rate, momentum gets you out of the way,” he said in April.

Trading-strategy practitioners generally fail to beat the market in the long run, and short-run success typically owes to good luck, according to decades of academic research. Although successful investors certainly exist, researchers have struggled to parse the role of luck vs. skill, let alone identify truly skilled managers in advance.

Common sense explains the challenge.

Partridge is a very smart guy. However, his success depends on being smarter, every day, than the very smart people on the other side of his trades.